I don’t know about you, but I find these numbers mind-boggling: there are not just fewer funds and more stocks in the small and mid cap space, but AUM is deeply under-represented / under-allocated to this space too.

The lack of a crowd in small and mid caps is likely a good reason for this space’s relative undervaluation and its long-term attractiveness. Likewise, the crowd that operates in the very limited Top 40 space is likely a reason for its shares being efficiently priced and minimal alpha existing here.

Sources: Bloomberg, Iress and my workings; Over the last 15 years of market data

Those who know PEG ratios will know that a PEG of 1.0x implies that a share is efficiently priced. The Top 40’s long-term PEG ratio is exactly 1.0x, implying that only really beta exists here.

Likewise, with the Mid Cap and Small Cap indices showing PEGs lower than 1.0x, it implies that these sectors are cheap and you can buy undervalued growth here. In the small cap space, that is growth undervalued by a massive relative 60% (PEG of 0.4x). Adjusting for illiquidity, this is likely less, but it does serve to illustrate the sheer attractiveness of this part of the market.